Current Asset Analysis- Case of American Eagle Outfitters 2020

Current Asset Analysis- Case of American Eagle Outfitters 2020

Established in 1977, American Eagle Outfitters (AEO) is a worldwide firm based in the United States. The business, often known as American Eagle, is well-known for its apparel labels. In 2006, American Eagle was listed on the New York Exchange. Among its most well-known offerings is Aerie, which provides young ladies with a friendly and secure environment where they can buy form-fitting clothing, including bras and underwear. At the moment, American Eagle Outfitters Inc. has over a thousand locations in the US, Canada, Mexico, and Hong Kong. The company’s headquarters are in New York, where its designs and creations are made. For this part of the project, the company will be held at the center stage for the analysis of its current assets (Zxhang et al., 2023). Current assets are reported in the company’s balance sheet. The statement for the period that ended in February 2020 will be used to evaluate the current assets. Three pertinent questions will be answered when evaluating the company’s current assets. Accordingly, the first task will be to identify the company’s cash requirements. Second, the analysis will evaluate the value of the company’s cash equivalents and cash. Third, the nature of the receivables that the organization will be evaluated.

The Cash Needs of American Eagle Outfitters Inc.

To determine the cash requirements of American Eagle Outfitters Inc., there is a need to review information sourced from the cash flow statement of the company. Essentially, the cash flow statement provides information regarding the various sources that generate income for the company. Further, it considers the cash outflows of the company, which offer an insight into the needs that the company must cater to. For that reason, focus is given to the organization’s cash flow statement for the fiscal year 2020 and not the cash flow statement.

As provided in American Eagle Inc.’s cash flow statement for the fiscal year that ended in February 2020, it is evident that the company has many cash needs (American Eagle Outfitters, Inc., 2020). When the cash flows are considered regarding operating activities, the company needs cash for payment of income taxes, accounts payable, accrued compensation and payroll taxes, operating lease liabilities, merchandise inventory, impairment of assets, and depreciation and amortization of assets. Despite paying for these items, American Eagle Outfitters Inc. managed a net cash balance from operating activities of $415,416,000 in that period. Regarding investment cash needs, the company has cash requirements for capital expenditure on property and equipment and purchases for available-for-sale investments. The company used $210,360,000 for capital expenditure property and equipment and $85,000,000 for purchase for available-for-sale investments. Notably, these cash requirements resulted in a negative net balance for cash from investing activities of $174,894,000. In the last aspect of financing, the company has a cash need to pay for the effect of the exchange rate on cash. It is an aspect that affects all companies operating in the industry and collects cash from the global outlets. American Eagle Outfitters Inc. spent $696,000 cash to meet the effect of exchange rates.

The cash needs for American Eagle Outfitters Inc. significantly influence the balance that is reported on the company’s balance sheet regarding current assets. Notably, this is so because cash is a current asset that is very liquid and which contributes significantly to the company’s overall current assets. From the company’s statement on its financial position for the fiscal period that ended in February 2020, American Eagle Outfitters Inc. had $1,047,930,000 in current assets. Cash and cash equivalents had the second largest portion of this amount of current assets, totaling $361,930,000. As such, cash and cash equivalents are significant current assets for the company other than the merchandise inventory, which has the highest portion. Even though cash has the second-highest portion of the current assets, it is significant compared to merchandise inventory because of its liquidity.

Moreover, when the current assets are considered based on the order of liquidity, the most liquid assets are composed of cash equivalents and cash. Essentially, liquidity means that they can be used to meet the company’s maturing payments as and when they get due (Shygun et al., 2020). In the industry, the financial performance of competing firms is measured based on their liquidity status. Metrics such as the current ratio and acid-test ratios are used to evaluate this aspect. Investors prefer companies with a high level of liquidity because such companies are not likely to default on their short-term maturing obligations.

The Value of the Company’s Cash and Cash Equivalents

American Eagle Inc.’s value for cash equivalents and cash for the fiscal period that ended in February 2020 was $361,930,000. As provided in the company’s financial statements notes, the cash equivalents refer to highly liquid investments purchased. The cash equivalents must bear a maturing period of three months and below to meet the criteria of being considered to be cash equivalents (Kulikova et al., 2015). For the fiscal period ending in February 2020, the short-term investments that met the criteria for being cash equivalents included the available-for-sale certificates of deposits and commercial papers with a maturity period of more than three months. However, this should not extend to more than one year. The following table drawn from the company’s annual report gives an overview of the fair market value of the cash and cash equivalents, which were recognized in the financial statement of position for the period under analysis.

Table 1

The Fair Market Value of the Cash and Cash Equivalents (2019 and 2020)

(In thousands)	February 1, 2020	February 2, 2019
Cash and cash equivalents:
Cash	$126,087	$108,216
Interest bearing deposits	$235,843	$165,274
Commercial paper	—	$59,840
Total cash and cash equivalents	$361,930	$333,330
Short-term investments:
Certificates of deposits	$55,000	$70,000
Commercial paper	—	$22,135
Total short-term investments	$55,000	$92,135
Total cash and short-term investments	$416,93	$425,465

The Type of Receivables for American Eagle Outfitters Inc.

The receivables for the company are current assets under the group financial balance sheet. Accounts receivable and other current assets are the two categories of receivables shown on American Eagle Outfitters, Inc.’s balance sheet. Amounts owed by clients for the sale of goods are represented as accounts receivable and recorded at their realizable net value—that is, the total amount anticipated to be received after subtracting a provision for questionable accounts held in the books of the company. Tax receivables, prepayments, and other current assets miscellaneous receivables are examples. Nevertheless, the balance statement does not specify the precise kinds of receivables that go under the other current assets category.

For the quarter that ended in February 2020, American Eagle Outfitters Inc. had an accounts receivable turnover of 20.39. The company’s accounts receivable turnover dropped to 20.39 from 82.42 as of the quarter ending February 2020, compared to the quarter ending January 29, 2011. In addition, American Eagle Outfitters Inc.’s top quarterly accounts turnover for receivables was 93.40 between 2011 and 2020. Additionally, American Eagle Outfitters Inc. had the least accounts receivable turnover of 18.86 throughout that time. From 2011 to 2020, The company’s average accounts receivable turnover was 51.89 per quarter. In addition, during the Trailing Twelve Month (TTM) period, American Eagle Outfitters Inc.’s accounts receivable turnover was $80.60. American Eagle Outfitters Inc.’s accounts receivable turnover for the quarter ended February 30, 2020, was 20.39, which was less than 66.39 of its competitors in the clothing and fashion stores sector group, taking into consideration the performance of the industry. The average accounts receivable turnover for American Eagle Outfitters Inc. from January 29, 2011, to February 2020 was 51.89, while the industry average was 82.53.

Conclusion

In conclusion, American Eagle Outfitters Inc. has a significant amount of current assets that total $1,047,930,000. Notably, the current assets are largely made up of cash and cash equivalents, merchandise inventory, and accounts receivable. The analysis shows that American Eagle Outfitters Inc.’s financial needs entail payments for expenditures related to operations, investment, and financing. The cash and cash equivalents are analyzed further for a better overlook of the firm’s financial performance liquidity. From the breakdown, the cash equivalents are composed of interest-bearing deposits, commercial papers, and certificates of deposits. Further, the receivables for the company are current assets under the consolidated balance sheet of the company. When the industry dynamics are considered, the company has an average performance regarding the management of current assets (Ye et al., 2022). Thus, there is room for improvement that can be explored.

References

American Eagle Outfitters, Inc., (2020). Annual report. https://www.sec.gov/Archives/edgar/data/919012/000156459020010469/aeo-10k_20200201.htm

Kulikova, L. I., Garyntsev, A. G., & Gafieva, G. M. (2015). The balance sheet is an information model. Procedia Economics and Finance, 24, 339-343.

Shygun, M. M., Ostapiuk, N. A., Zayachkivska, O. V., & Goylo, N. V. (2020). The influence of the classification of non-current assets as holding for sales on the liquidity of the company’s balance sheet. Entrepreneurship and sustainability issues, 8(1), 430.

Ye, M., Shen, J. H., Golson, E., Lee, C. C., & Li, Y. (2022). The impact of Sino–U.S. trade friction on the performance of China’s textile and apparel industry. International Finance, 25(2), 151-166.

ZXhang, Y. X., Haxo, Y. M., & Mat, Y. X. (2023). Analyzing American Eagle Outfitters Stock: A Retailer Navigating the Changing Landscape. AC Investment Research Journal, 220(44).

ORDER A PLAGIARISM-FREE PAPER HERE

We’ll write everything from scratch

---

This IP builds upon your work in Unit 1.

You will continue to analyze and interpret the financial statements for American Eagle Outfitters, Inc. Using the financial statements, review the company’s assets.

Consider the following questions:

What are the cash needs of the company?

What is the value of the company’s cash and cash equivalents?

What type of receivables does the company have?

Deliverable Requirements: Your evaluation of assets should have at least 5 pages (the title and reference pages are not counted in these 5 pages) as well as follow the requirements below for using the APA style. Your evaluation should include the following:

For your evaluation of current assets, present industry findings regarding assets.

Address the questions above and consider their implications for American Eagle Outfitters, Inc.

Do not forget to review the notes to the financial statements for additional information about the company’s assets.